Capital Gains Manual

Settlor - TCGA92/S86

TCGA92/S86(1)(c) and TCGA92/Sch5/para7

A person is a settlor of a settlement if the trust property originates from them. TCGA92/Sch5para8 defines when property originates from a person. See CG38500 for guidance on the meaning of property originating from a person. The basic requirement is that the property is provided by them. CIR v Leiner 41 TC at page 596 shows that the word “provided” must connote bounty in appropriate circumstances. Therefore a settlement devoid of bounty is not within section 86. An example would be a genuine commercial arrangement by a company to attract, retain and motivate good quality staff. HMRC published this view in Tax Bulletin 16.

The settlor has to be UK resident and domiciled, section 86(1)(c).

For tax years before 2013-14 the settlor had to be resident throughout the year. For the years 2013-14 onwards under the statutory residence test, see RDR3, it is not possible for an individual to change their tax residence during the year.

Domicile

For all tax years the settlor need be domiciled for only part of the year but it is unusual for a person to change their domicile. The fact that a UK resident settlor is non-domiciled is often a reason why section 86 doesn’t apply. If section 86 doesn’t apply chargeable gains may accrue under TCGA92/S87 if the beneficiaries receive capital payments from the trustees. There is no requirement that the settlor is UK-domiciled for section 87 to apply.

Death of settlor

TCGA92/Sch5/para3

Section 86 does not apply in the year the settlor dies. This includes gains that accrue to the trustees in any part of the year before the settlor died. Any liability in respect of the trustees’ gains will be on the beneficiaries under section 87.